UPS to Debut New Customs Clearance and International Returns Solutions for Small Businesses

Edited transcript of BriefingsDirect[TM] podcast with Laurel Delaney of GlobeTrade.com, Stu Marcus of UPS, and Scott Aubuchon of UPS on new ways of simplifying international shipping and commerce.

Listen to the podcast here. Sponsor: UPS. Learn more about the solutions described in this discussion at http://www.ups.com/simplify.

Dana Gardner: Hi, this is Dana Gardner, principal analyst at Interarbor Solutions, and you’re listening to BriefingsDirect. Today, we present a sponsored podcast discussion about the new opportunities for small- and medium-size businesses (SMBs) to take advantage of overseas markets for their goods. The Internet has opened up many channels for sales and marketing, but there still needs to be the physical delivery of the goods.

We’re going to talk about customs clearance and some new efficiencies and digitization opportunities there. We’re also going to look at the flip side, of how returns are handled for goods and materials that are crossing borders, and how that can be managed and made more efficient.

Joining us to discuss this, we have an expert and researcher on these issues, Laurel Delaney. She is the founder and president of GlobeTrade.com. Welcome to the show, Laurel.

Laurel Delaney: Thank you for having me.

Gardner: We’re also going to discuss this with Stu Marcus. He is a director of new product development at UPS. Welcome, Stu.

Stu Marcus: Hi, Dana, thanks.

Gardner: Also joining us is Scott Aubuchon. He is also a director of new product development at UPS. Welcome, Scott.

Scott Aubuchon: Thanks, Dana. Thanks for having me.

Gardner: Let’s start with Laurel. Help us understand some of the issues facing small businesses, those seeking to expand their addressable markets and how they can start doing more business overseas.

Delaney: Actually, there are two forces at work right now for small businesses. One has to do with the issue of globalization. I think we all know the buzz that’s going on about going global that has been driven largely by Thomas Friedman with his book, "The World is Flat." He’s caused mainstream America and all small businesses to step up to the plate and consider the world as your market. The second force is technology, and technology is making it easier now to go global.

Gardner: So we have the opportunity, yet we still have the physical barriers. Let’s take another look at this through the lens of some other trends. There is the North America Free Trade Agreement (NAFTA), the Central America Free Trade Agreement (CAFTA), and the World Trade Organization (WTO) measures.

Have borders become more open or less open -- because we’re also talking about the post 9/11 era?

Delaney: NAFTA, CAFTA, and the WTO have absolutely enabled small businesses to go global far more easily. They've removed barriers, eliminated tariffs, and have softened the rules a bit for doing business internationally.

Gardner: Has the consolidation of currencies in Europe and also the value of the dollar in relation to other currencies made the desire for SMBs to look across their borders more financially interesting?

Delaney: It depends on who you are. What I mean by that is, if you're a Wal-Mart shopper, many of the products are made in China. The Yuan [China’s currency] is tied to our dollar, so there is very little effect on the price of goods. But if you are a worker at a Boeing plant, for example, a weaker dollar really means that foreigners can buy more of what you make.

If you’re an American tourist and you're vacationing in Paris, your dollar buys fewer Euros right now. So you’d probably end up spending $7 for a cup of coffee, or even $50 for a taxi ride.

A weak dollar can be good for the U.S. economy, though, because it makes American exports cheaper and therefore helps close the trade deficit.

Gardner: Let’s open this up to Stu and Scott. UPS recognizes a growing international opportunity here, and has created some services to help companies better deliver and return goods. What is it that prompted you to pursue this potential growth?

Aubuchon: As Laurel said, we've really seen the world become flat. International shipping is at an all-time high. The Internet is making it easier for SMBs to trade internationally. Many of the free-trade agreements have helped, as well. But there’s still a lot of complexity involved in shipping across borders, and that’s something that we at UPS are very interested in helping our customers deal with and overcome.

Gardner: What are the problems or hurdles that are preventing SMBs from looking to do business -- increasingly more business -- overseas?

Aubuchon: One common problem for everyone that ships internationally is just the documentation that’s required and associated with international shipping. For example, when you ship a package domestically, you simply put on an address label and off it goes.

For anything that’s not a document or a letter moving internationally, a commercial invoice is required to go with that shipment, in order to define what is contained in the shipment. So, for example, if you were shipping a cotton shirt, you’d need to document what type of shirt it is, where it was made, and what the fabric is. That process can be fairly complex and somewhat daunting, especially to folks who don’t do a lot of international shipping.

Gardner: How has this process changed in recent years, since 9/11, since the war on terror in the United States, and its active homeland security activities? Has it become easier, harder, or more complex? What’s been the change in the last five or six years?

Aubuchon: I am not sure I would say it’s become harder, but there’s definitely been a shift in emphasis. As we talked about, there have been a lot of free-trade agreements put in place, but the focus on international shipping has moved away from duty and tax to more of a security picture.

Back in the United States, the U.S. Customs Bureau used to be part of the Treasury Department. It’s now called U.S. Customs and Border Protection, and it’s part of the homeland security function.

So even though there’s freer trade, the documentation required for trade security purposes is still very important, and may be more important than ever. This is why at UPS we think helping customers with that documentation and the complexities of international shipping is a very important step for us to take.

Delaney: I want to add to that. U.S. Customs and Border Protection are scary words to a small business owner. The whole idea of simplifying the process is important, so that small businesses can go after this in a fearless fashion.

Gardner: All right. Let’s move into some of the solutions. If I am a SMB, and I have some robust growth, I recognize that the currencies are working in my favor, and I recognize that the Internet is giving me the opportunity to market -- to gather orders and process them across borders very easily at low cost -- how do I take the next step? What are some new solutions for customs clearance?

Aubuchon: One thing UPS is doing to help change the face of global shipping is to be first to market with a solution called UPS Paperless Invoice. This enables our customers to provide us with electronic data defining what’s in the international shipment -- that would be the commercial invoice data -- and provide that seamlessly and electronically, so that we can transmit it and use it for clearance on the other end. This eliminates the need for the customer to print and manually apply three copies of that document to each shipment.

Gardner: Explain in a little bit more detail how that works. Is this completely paperless, or is it streamlined? Walk us through the process, please.

Aubuchon: From the customer's perspective it really is completely paperless. They can take the data regarding the commodities they're shipping and either apply it within, or connected to, their shipping system. Then, when they prepare the shipment, they simply designate the commodities that are in the shipment, transmit that information with the shipment upload, and we will use that information at the destination to clear the shipment.

The customer doesn’t need to print and apply any paper at all in that process. This helps by saving them time, money, and paper.

Delaney: Let me jump in again. I just love the way that that sounds. For small businesses, I always like to cut to the chase about where can this be found. Where do they go right way so that they can instantaneously access this information? [See more on this solution at http://www.ups.com/simplify.]

Aubuchon: That’s a great question, Laurel. The answer is that in January our customers will be able to utilize UPS Paperless Invoice throughout our shipping system. If they happen to use our WorldShip shipping system, or do it over the Internet at our Internet Shipping site, they simply need to get set up as a paperless shipper.

This means they have to contact us and have one of our sales folks collect from them the initial information, which is an image of their signature and their invoice letterhead. From that point forward, they would simply apply that data to the shipment.

When they click "Ship," the data will go with that shipment information to UPS and be used for clearance at the destination port.

Gardner: I suppose another concern for businesses is not just getting it done at all, but being successful in global trade. What if they need to scale up their shipping rapidly? What if the volume increases rapidly? Are these services also something that can help them manage and automate batches or bulk deliveries? And how do you take this into a larger, automated volume play?

Aubuchon: That’s another great point. Certainly for SMBs, UPS Paperless Invoice will streamline their processes; reduce some of the complexity, and lend some consistency to the documentation required for international shipments. For those businesses that grow, or for larger enterprises, this is extremely valuable, in that it streamlines what today is really an exception process that needs to be done for each shipment -- printing and applying these paper invoices.

With Paperless Invoice, they can make their international shipment processing really seamless, and become the same as their domestic processing, which can eliminate the need for additional space and resources for that activity.

So, this is definitely something that will help someone to scale up or help someone already large to be much more efficient in their global shipment processing.

Delaney: So that means that we can move people off eBay.com in single shipments and get them over to this, right?

Aubuchon: Potentially, yes.

Gardner: Are there other software systems that you integrate or interface with? I suppose there are several invoicing and bookkeeping systems that are popular.

Aubuchon: Yes, and we do. In fact, our WorldShip shipping system allows customers to integrate through a number of different means to other databases or systems that they may use to produce this information. They can either enter it directly into the shipping system or they can link through technology and pull that information in. So, yes, it’s definitely an option for customers to use existing systems and data and to easily provide this information to UPS.

Gardner: You mentioned that this would come online in January 2008. You also mentioned being first to market. How does this compare to what's available through alternate shipping channels?

Aubuchon: If you look at the industry, whether it’s other small-package carriers that we compete with, freight forwarders, or freight companies, you’ll find that the process is really the same. They have to document the shipment by commodity and apply paper copies of that invoice to the shipment.

We’ll be the first ones in the market that will eliminate the need to take that step, and we'll use this information to seamlessly clear goods at any destination.

It’s only because UPS has a global reach and has the global technology infrastructure in place, that we can do this, starting from the touch point with the customer and their shipping system all the way through to our interaction with customs brokerages at the destination. So, we'll be the first to do this and we believe that will be a significant enhancement for our customers.

Gardner: Great. In addition to the customs clearance problem, there are also things like duties, taxes, and tariffs, which do vary from geography-to-geography and nation-to-nation. Is there anything that you’ll bring to the table to help expedite that, or is that still something that businesses need to address on their own?

Aubuchon: Those definitely are issues, as well. One of the keys to dealing with duties, taxes, and a proper treatment of shipments is, in fact, the documentation. So getting that commercial invoice data correct, and consistently applied to each shipment, will be a big help with that. UPS also does have other tools available at www.ups.com that can help customers with issues like determining compliance considerations for shipments as well as determining estimates of duties and taxes. That's called UPS TradeAbility.

Gardner: We’ve talked a little bit about the fact that the world is flat, that there is more opportunity for international trade, and that it’s probably never been easier to expand abroad both from a technological as well as a legal and regulatory standpoint. We’ve talked about the fact that there’s still complexity and that there are issues and problems with paperwork. Then we talked a little bit more about some solutions that you bring to the table.

Do we have any sense of what this is going to actually do for businesses? Obviously, they're going to be able to grow their top line of revenues if they can sell more goods in more places. But I'm interested in how this can impact businesses from the profit dollars-and-cents perspective. Stu or Scott, have you done any pilot projects or worked with some customers and gotten a sense of how impactful this is to profitability?

Aubuchon: Well, for a couple of our largest customers we've actually put in place a Custom Paperless Invoice solution. And for those two entities it’s been a significant help in terms of efficiency in their shipping process, of being able to apply resources more efficiently to other more meaningful paths.

Also, because the data is moving electronically at the speed of light to its destination, it's not susceptible to being marred or lost in transit, as a piece of paper might. It’s also helped them to get their shipments cleared more seamlessly. We've seen that for a couple of our customers -- and we expect that the same will be the case for our customers who start using UPS Paperless Invoice in January.

Delaney: I'm predicting that the more that you can save a small business time, money, and their sanity, the better off everyone is going to be, in terms of allowing them to really go global in the fashion they desire.

Gardner: Laurel, you’ve been in the business of helping small businesses better understand their global opportunities. Have you done any surveys or had discussions? How prominent are these customs and border issues when it comes to the SMBs considering whether to expand their business overseas?

Delaney: That's a great question. I have a funny story on what just took place a couple of weeks ago, when I was giving a presentation. No one in the audience knew me. They really didn’t know my background, and somehow they saw the title of the presentation which was, "The World is Your Market: Small Businesses Gear Up For Globalization."

After the presentation, a half a dozen people came up to me and said, “I was so relieved to hear your presentation and that you didn't stand up there and just talk about customs clearance, documentation, tariffs, and taxes.”

What that said to me is that this is a huge issue. A lot of small businesses stop dead in their tracks -- don’t do anything in terms of going global -- because of the hassle related to just beginning customs regulations and paperwork.

Gardner: They don’t know how or where to get started?

Delaney: Right. They do not know where to get started. So what's being offered through UPS is a godsend. It really is.

Dana, you asked about surveys that I’ve conducted. I actually haven't recently, but I am fully aware that UPS just released a study called the UPS Business Monitor United States. One thing that fascinated me about the study was one outcome that indicated that only one-third of U.S. mid-market firms conduct cross-border trade.

Think about that. Think about what a small number of businesses that is and how many more businesses are missing the opportunity to tap into more than six billion potential customers around the world. In the U.S., they're touching on maybe 300 million people, but when they go outside of their borders, they can tap into a larger percentage of the world’s population.

If you look at the latest world Internet statistics, you’ll see that more than one billion people are now online. So, just being online, having a Web site or a blog -- or this podcast -- gives you the capability to reach more than a billion people instantaneously. The potential is just enormous.

Gardner: Right, there are lots of upsides. Now, we have a great potential for growth in new business from the seller’s perspective. I would think that the customs folks would also be interested in this, because it's going to create more traffic across the borders, more opportunity for them to monetize and create services. Have you had much discussion with the customs people? How do they view this opportunity?

Aubuchon: We certainly interact with customs all over the globe every day, as we move shipments and serve as the customs broker. With the new UPS Paperless Invoice offering, we’ve definitely been in ongoing conversations to try to help customs officials understand what our goals are in helping our customers, and ultimately in helping them to get better information more quickly, and help them to more quickly clear goods.

In general, it has been very positively received. This is really the way, as we talked about earlier, that the world is going -- in that information is becoming digitized and moving much more quickly. So we feel like we’re really on the leading edge of using technology to help customs clearance processes become quicker and more accurate.

Gardner: The more commerce there is, the better it is for most of the parties involved, right?

Aubuchon: Absolutely. It's really a win-win situation both for the exporter and the importer when international trade occurs.

How to Return Goods Across Borders

Gardner: Let's move onto another problem set in this overall activity. It's great that I can move goods in one direction, but what if I need to move them back? What if there's a situation where a customer didn’t like the color, or perhaps the order wasn’t what they expected, or they would like to return and upgrade or get a replacement?

How do we deal with returns? We hear that for some 70 percent of international returns, there is no standard operating procedure. They’re just done on an ad hoc, exception-by-exception basis.

Let's go first to Laurel. How important is this return capability to the overall comfort level for these smaller businesses?

Delaney: Indicating to your customer that you’re ensuring some type of a guarantee is vital to the overall transaction. When small businesses sell to their customers, they want to ensure satisfaction – absolutely, positively. So, to answer your question, it’s very important to have this return process in place.

Gardner: Maybe Stu or Scott could explain what's involved. What has been the case up until now with returns when they need to happen across borders and come back through customs?

Marcus: I'll handle that. Laurel is absolutely right, and the research that we have done with our customers indicates that the most important reason customers want to have an efficient return process is for their own customer service. Exporting goods and shipping items globally is only one part of building your business. Offering customer service when things are wrong or customers need to replace items is really key to building customer loyalty and gaining additional business.

Customers know that, in the past, having items returned internationally was really a time-consuming and burdensome process. You have receivers who need to return items internationally, and they may not be familiar with shipping internationally. The shipper who sent it out really has a knowledge base in doing global commerce. Now, the receiver has these items and no way to efficiently get them back.

In the past, what shippers had to do was fill out a manual waybill and send it via mail or local post. It would take a couple of days or a week to get to the receivers. At times, they would just leave it up to the receiver to return these items on their own. That’s really not a very efficient process.

Customers have told us, especially small business owners, that because of this inconsistent process either they were afraid to do business internationally, or, when they did, there were times when they had to abandon their goods, because they just could not get the goods back to their own customers in a timely manner.

Gardner: The receiver wouldn’t even know where to get started if they wanted to return, right?

Marcus: That’s absolutely right. Receivers may not ship regularly or maybe had never shipped before. They're just receiving goods, and then they’re stuck with these items that need to be returned.

Delaney: What I love about this for small businesses is that it now gives them an extra little edge with their customers. It's a new promise that they can make to their customer, and that will set them apart and help them be even more competitive in the global marketplace.

Gardner: I know when I do returns, that it actually gives the seller another opportunity to engage me, perhaps on some up-sell or some additional value proposition.

Delaney: Absolutely.

Marcus: With UPS Returns, which we are expanding to 98 countries, UPS is going to be the first carrier to offer this type of solution to shippers. Now shippers can use the same UPS technology with which they export goods to prepare the return label and get it to their receiver to initiate the return process.

Gardner: This is going to begin in January 2008. What’s going to be different for the sender, and what’s going to be different or better for the receiver in terms of managing this international returns process?

Marcus: In January, UPS Returns will enable shippers to prepare a return label and also the commercial invoice, which can then be sent to the receiver in a couple of different ways.

First, they can produce it while they’re exporting a package, so they can just put a return label and an invoice in the package. Then the receiver, if they do need to return something, will have the label and the commercial invoice ready to go.

Another way is through e-mail. A shipper can now prepare a label and a commercial invoice and have it e-mailed directly to the receiver. Where in the past you would only be able to fill out a manual label and put in the mail, now the receiver can get it immediately, and then use the label and the invoice to initiate the return process.

In certain countries, we can have a UPS driver bring the label and commercial invoice directly to the doorstep of a receiver who needs to return something. All these options could be initiated through the normal UPS technology platform -- UPS WorldShip, CampusShip, or Internet Shipping.

Gardner: These are available through the Web, right?

Marcus: Yes, CampusShip and Internet Shipping are two Web-based platforms we have. UPS also has an XML tool, which is a shipping API, which can be integrated into a shipper’s internal process or their Web site in order to initiate this process.

Gardner: For those folks who are not software developers, this means they can use your Application Programming Interface (API) as a tool kit to integrate your software and processes with theirs?

Marcus: That’s right. To a receiver, it’s seamless. You just go right to the shipper’s Web site, and you can initiate the return.

Gardner: How does that strike you, Laurel, as a new opportunity to manage this returns process?

Delaney: It sounds fabulous. Some of this I already knew, and I’m being educated at the same time. What I’m always thinking is, where do I go and how do I take action? That’s the bottom line on this.

We've covered what the first step is for small businesses -- where they go online to start using this capability. Or, if they don’t want to access it online, whom they can call to get further information. [Learn more about the solutions described in this discussion at http://www.ups.com/simplify.]

Marcus: Laurel, this is one of the first times where SMBs will have access to this scope of global returns capability. In the past, the carriers were able to put together customized solutions, but that was mainly for larger customers. With UPS Returns this is the first time we will have a general service offering. There is no customer setup needed. The customer needs only to use our normal UPS Shipping Solutions or use Internet Shipping, and the capability will be right there.

Gardner: I believe there are a lot of direct and indirect cost savings involved with this aspect of the process. That is to say, the cost of a lost sale or a dissatisfied customer might be an indirect loss of future business.

If you can streamline the process, automate it, and scale it, I would think that the savings are pretty significant. Have you received any feedback from some of your early customers?

Marcus: One thing customers tell us is that they notice an improvement in customer service. The cost of setting up the returns process is negligible, and the transportation cost is in line with our normal transportation cost for exports. But none of that was a factor in our research. Building relationships and setting up a business to bring customers back for return purchases was really the most important factor of UPS Returns.

Gardner: So the logistical costs are low, if those long-term benefits include a recurring, happy customer. That really is the story here.

Marcus: That’s absolutely right.

Gardner: Does that ring true with your experiences, Laurel?

Delaney: The obvious benefits are greater efficiency and time and cost savings. I see additional growth now for SMB enterprises due to the ease of use on the paperwork side of transactions.

But two other things will occur as a result of this UPS Customs Clearance and International Returns benefits. This is an unusual way to look at it, but SMBs will be able to devote more time to innovation.

In other words, just by thinking creatively about going global, they can go global. That’s critical to remaining competitive, and it will allow them to spend more time on the strategic versus the tactical side of globalization.

Gardner: And then, therefore, focus on the marketing and not worry about the paperwork and all of the processes and the transaction.

I know you can’t tell us about products and services that haven’t been announced, but this strikes me as really not the end game. Perhaps it's just the first few steps into some more additional global trade value-added services and shipping expediency benefits.

Can you paint a picture for us about what might be happening in the next several years in terms of international trade in multiple directions?

Aubuchon: At UPS, we’re constantly talking to our customers and trying to identify the issues they face with shipping, and specifically international shipping. We’re continually in a conversation, trying to identify those pain points and to design solutions. UPS Paperless Invoice and UPS International Returns are two examples that will be coming out in January.

But as we move forward, rest assured that we will continue to evaluate other opportunities and deliver solutions for our customers to address other issues.

Gardner: For the small business that might have some ideas about what they need to achieve efficiency, can they send those ideas to you, COD?

Aubuchon: Oh, absolutely. The voice of our customers is very important to us, and anything they want to share with us, we’re more than happy to listen to and take into consideration and see what we can do to help them.

Gardner: Very good. I want to thank our group. We’ve had an interesting discussion, understanding some of the hurdles -- and now some of the new efficiencies -- that are being brought to cross-border commerce for SMBs.

Helping us to understand this opportunity and newfound efficiency, we have been joined by Laurel Delaney, the founder and president of GlobeTrade.com. Thanks, Laurel.

Delaney: Thank you.

Gardner: Also joining us has been Stu Marcus, director of new product development at UPS, as well as Scott Aubuchon, also a director of new product development at UPS. Thank you, gentlemen.

Marcus: Thanks, Dana.

Aubuchon: Thank you, Dana.

Gardner: This is Dana Gardner, principal analyst at Interarbor Solutions, and you have been listening to a sponsored BriefingsDirect podcast. Thanks for joining.

Listen to the podcast here. Sponsor: UPS. Learn more about the solutions described in this discussion at http://www.ups.com/simplify.

Transcript of BriefingsDirect podcast on international shipping efficiencies and UPS solutions. Copyright Interarbor Solutions, LLC, 2005-2007. All rights reserved.

BriefingsDirect SOA Insights Analysts on IBM's Information On Demand, SAP's Business Objects Grab, and How WOA Meets Guerilla SOA

Edited transcript of weekly BriefingsDirect[TM] SOA Insights Edition podcast, recorded October 19 , 2007.

Listen to the podcast here. If you'd like to learn more about BriefingsDirect B2B informational podcasts, or to become a sponsor of this or other B2B podcasts, contact Interarbor Solutions at 603-528-2435.

Dana Gardner: Hello, and welcome to the latest BriefingsDirect SOA Insights Edition, Volume 26, a weekly discussion and dissection of Services Oriented Architecture (SOA) related news and events with a panel of industry analysts, experts, and guests. I'm your host and moderator, Dana Gardner, principal analyst at Interarbor Solutions.

We’re joined by a crew of three analysts and experts this week (week of Oct. 15, 2007) to discuss three basic topics, some timely, some deep and interesting. We’re going to discuss the recent IBM Information On Demand Conference and some of the news that’s emerged from that.

We’re also going to discuss Business Objects, its pending acquisition by SAP, and the news that Business Objects has been making in a very hot business intelligence market.

We’re also going to take a quick look at the pending or I suppose "sought- after" acquisition by Oracle of BEA, and what that might portend for SOA-oriented vendors in the space or the consolidation trend that we’ve been seeing for several years now.

[UPDATE: Latest business story around BEA and Oracle.]

The rest of the show today is going to deal with SOA and what’s also called Web Oriented Architecture (WOA). We want to sort out how they relate to one another, look at the notion of RESTful and some lightweight approaches and whether that is a subset of SOA or an alternative parallel universe.

To help us sort out these interesting topics, we’re joined today by Tony Baer. He is a principal at onStrategies. Welcome, Tony.

Tony Baer: Hi, Dana. How are you doing?

Gardner: Doing great. Also joining us, Jim Kobielus, principal analyst at Current Analysis. Thanks for joining Jim.

Jim Kobielus: Thanks Dana. Hi everybody!

Gardner: Also joining JP Morgenthal, CEO of Avorcor. Welcome JP!

JP Morgenthal: Hello, everyone and thank you.

Gardner: Let’s first get into the more time-sensitive issues. Jim Kobielus, you just came back from an intense road trip, attending both the IBM event and a Business Objects event this week. Let’s start with IBM. What are the main takeaways from the On Demand event that you attended?

Kobielus: It was Information On Demand in Las Vegas. About two years ago, IBM established an organizing framework for their data management, database integration, and other data solutions, called Information On Demand, and it’s just a big catch-all for the products they already had, as well as lots of new projects they’ve been developing to address data management under the SOA big top.

Last year there was a big splash, when they brought together all of their data integration and data quality tools under the solution family called IBM Information Server and integrated it all through common metadata and tooling. That was an excellent show.

This year another excellent show. I’ve been to lots of industry shows and have never been to a show with this many announcements on one day. On Monday of this week, IBM released 10 press releases, and even those press releases didn’t capture every nuance of every product announcement, enhancement, and initiative they've got going on.

It was overwhelming and impressive. First of all, IBM is enhancing pretty much every single component of their Information On Demand portfolio. They announced upgrades or enhancements to their databases, data warehousing products, their master data management (MDM) products, their data integration products under the Information Server portfolio, their enterprise content management products, the FileNet products, plus the preexisting IBM content management products.

They announced enhancements to the pre-packaged industry-solution accelerated frameworks for banking, retail, telco and so forth, to enable quick deployment of data integration and MDM.

They announced a broader range of new global professional services geared toward Information On Demand and various verticalized project accelerator offerings in Global Services. I'm looking at my cheat sheet right now, because I have to keep reminding myself exactly what transpired.

They announced that they have integrated their recent acquisition of DataMirror and its changed-data capture and a real-time replication technology into the Information Server data integration suite and also their database warehouse products and their MDM Products for real-time business intelligence (BI), data warehousing, and so forth. They also announced that they had re-branded the recent acquisition of Princeton Softech products Optim family under the IBM brand, but didn’t make any significant feature enhancements beyond what Princeton Softech was already providing.

They did lay out a reasonably good roadmap for further integration of Optim into IBM’s overall data governance and data management solution offerings. One very important uptake is that IBM, which has multiple MDM products they acquired from vendor acquisitions, is converging them onto a single product platform. That will be extensible and will be their flagship MDM server platform fully integrated into IBM Information Server and fully integrated into the DB2 9.5, the new version of the database and into the DB2 Warehouse 9.5 Data Warehouses. That’s a work in progress.

They’ve basically taken one of the existing MDM products, IBM WebSphere Customer Data Integration offering and they’ve made that essentially the DNA underlying this new converged MDM server, which will address more than just customer data integration for product information management, financial hubs, etc. So they have clearly designated a convergence platform that will be released sometime in the first quarter of 2008.

Gardner: Let me pause you right there. Now, just for a little historical context, IBM, which was very strong in databases for years with DB2, went on a bit of a buying spree a few years ago, including Ascential and some others, elevating the value of data, as a precursor to the move toward SOA. They recognized there were several major trends taking place that people wanted to cleanse and consolidate data, wanted to look at data as something separate from specific applications, and move towards the services-layer approach to data as well as MDM, and data warehousing, which is intelligence.

So, a number of industry-wide trends have buttressed IBM. They’ve been aggressive just recognizing that if they can offer a complete, integrated, and simplified approach to data as a separate resource unto itself, it gives them great entree into other aspects of SOA, as well as taking advantage of the hardware and storage requirements beneath this, the storage area network (SAN) requirements and also the management that helps their other management products such as Tivoli. Does that make sense?

Kobielus: Everything you said applies directly to IBM. One of the most exciting things from the show was that IBM is getting deeper into mashups with their tooling and their overall product and solution portfolio. In other words, everything in the IBM Information Server and the latest enhancement through all the databases is very SOA-focused, but now IBM seems to be getting into what someone call WOA through a mashup toolkit, IBM Mashup Starter Kit.

They have a mashup hub, this mashup online community called QEDWiki. And, more than just the tooling, they laid out a very interesting overall organizing framework to address this area called Info 2.0. It’s not a product, but simply a vision. They had a very good discussion of where they’re going, and it’s equivalent to some of the other interesting visionary mashup offerings in the data mashup.

Gardner: Just hold that thought. I want to go to Tony Baer. Tony, given what Jim has said about IBM and what you know about their emphasis and approach to data information, content, and almost any objects now, when you bring in FileNet and its capabilities, where do you put IBM in the greater scheme of things.

Do they really have a leadership position here or they’re trying to bite off too much? How do they compare to the other big data players, particularly Oracle?

Baer: What's really interesting is the whole idea of IBM biting of more than they can chew. IBM and Oracle are among the few organizations that could pull off something like this and not be overwhelmed by it. You and I saw this several years ago when Ascential had it’s analyst conference right after the acquisition by IBM and they revealed the roadmap. What's impressed me is that it’s been a very deliberate plan.

A cornerstone of that was Information Server, the whole information-server strategy. Ascential itself was kind of a mini IBM, a company that was glued together by acquisition. What they realized was they had all these disparate tools that ultimately related to the lifecycle of data in all those different forms, and, prior to the acquisition by IBM, they had a roadmap which, I believe, was called Hawk.

Kobielus: Hawk and Serrrano. They had two roadmaps, Tony. They had to converge last year.

Baer: Thanks, Jim. The interesting part was that it was all going to become metadata driven and that would drive all the data-integration and data-access strategies. So, I see that as the unsung hero of all this. It provided a more global perspective IBM needed and rationalizes all of these other initiatives. It’s not that everything is acting off of Information Server as a hub, but it provides a logical core or gut unification theory.

Gardner: Oracle, also dominant with their database and installed base, moved aggressively into middleware and business applications, particularly back office applications. Did Oracle give short shrift to this whole notion of warehousing, cleansing, canonical views of data and the whole BI area? Is Oracle catching up to IBM?

Baer: Oracle has had an obviously different focus, which is more at the application layer, whereas IBM has been more focused at the integration layer. Yes, Oracle now has the integration strategy called Fusion, but Fusion is like a big, blank space waiting to be filled. I don’t want to get ahead of ourselves here, but it’s part of what underlies the BEA acquisition.

Gardner: Of course, they paid a pretty penny for Hyperion trying to catch up in that.

Baer: Up until about a year-and-a-half or two years ago, Hyperion was IBM’s OLAP data-warehousing partner. One surprising thing during all those years was why IBM didn’t acquire OLAP. IBM eventually grew that capability themselves, but to answer your question, Oracle has been clearly focused on application integration, and they have all these application lines that are becoming the critical mass, the core focus of their business. So, from that standpoint, they probably have taken their eye off the ball in terms of data as a service, per se.

Gardner: Let’s go to JP Morgenthal. JP, as a CEO of a professional services and consulting organization, you are in the field. Rather than talk about this through the eye of vendor sports and who is doing what versus another, what are the users interested in, and how important are all these exclusive advanced data issues to them?

Morgenthal: You always have two different communities -- one very active, very leading-edge groups like financial services, and then there are always on the lookout for new technologies that are going to help them do their business faster and better, doing lots of more. They are not risk averse they are willing to throw some additional capital at those projects and see what they’ll bear. Right now they are the primary community that I see that’s really gung-ho on this.

The other group, let’s call them the moderates or the laggards, definitely view this technology as questionable. There are a number of people who walk the line, especially in IT, and say, "Oh yeah, SOAs the future," but have no idea why they are saying that. They have no understanding exactly how they would leverage it in an organization and, when given the opportunity to gain a better understanding, are more likely, at least in my experience, to push it off, stick with their existing environments, and not worry so much about SOA. In fact, they still lean towards, "I want a complete application. I really don’t want to play with this stuff."

Gardner: What about this issue of creating a comprehensive strategy around the lifecycle of data and about how that would be a precursor to SOA activities, but in the meantime getting the benefit of things like BI, data warehousing, data mining, and a better view across all the data that’s available into what's going on in the business?

Morgenthal: They love the idea. Right now, a majority of business management is focused on the business, the economy, and the other things affecting them. Those are nice to have right now, but aren't critical for most of them and that’s the way they view it.

Gardner: That's an interesting take, because this notion of getting your data act together isn't trivial. It’s very complicated, and there are a lot of interdependencies. It’s costly and it smacks of doing your homework in preparation for something that might pay off later. It's like eating your peas. Nobody wants to do it, but this is a discipline.

Therefore, people might be pushing it off, which relates to what IBM is doing, which is trying to make this comprehensive, more simplified, and more integrated, so that, in addition to those cutting edge organizations in such fields as financial services, this could be more palatable for the larger bell curve of enterprises. Does that make sense?

Morgenthal: From their perspective, yes. My concern for the industry as a whole is that people are going to view it as throwing a lot of consulting dollars down the drain and not seeing any value for it. I’ve recently joined the camp, at least academically, not in any way physically or throwing my weight behind it, but Guerrilla SOA is what I have been doing in my business. I just haven’t put a title to it.

I'm much more in favor of small, non-enterprise oriented, focused projects that deliver value within 30 to 90 days. I see that’s the greatest value right now for using these technologies based on SOA, Web services, and the like, because the enterprise stuff is nice, but right now it is too fluid for the industry to grab hold of. It’s resulting in potential large-scale problems for companies that have no idea how to build the distribution.

It all comes down to distribution. The problem with distributed environments is that very few people actually know how to manage them. In IBM’s case, they are one of the founders of distributed computing. At their core, they understand it well, but they buy too much into their own marketing hype and don’t tell customers well enough, "Hey, look, at the core of all this, of what you’re trying to do, trying to get more agile, we lived there. We built the first computers that became agile and communicated across network."

Gardner: Okay hold that, because we’re going to come back to that with our WOA discussion. That was very good. Let’s circle back quickly to Jim Kobielus. You also attended the Business Objects show, what was the big news there and what were people saying about the SAP acquisition?

Kobielus: The big news there of course was the pending acquisition by SAP. One of the good things was, at the very start of the keynote, Bernard Liautaud, the founder of the Business Objects, reassured the customers, employees, and partners that Business Objects will be a standalone product group under SAP. It will autonomous. It can continue to pursue its vision.

Right after Bernard spoke, they has a video from Henning Kagermann, the Chairman of SAP, issuing the same set of reassurances. Kagermann went into a little bit more detail in that video than they did the previous week when they announced that they are planning to acquire Business Objects. He said explicitly that SAP will not force Business Objects to use SAP technology.

It will up to Business Objects whether it makes sense to use a particular piece of SAP technology in any given product, but he reassured everybody that there will be growing integration between Business Objects and SAP offerings.

But Kagermann intends to have it both ways, because he then said, “We will also make sure that Business Objects maintains an equivalent level of tight integration with all of our competitors.” He's trying to have it both ways, but at least Kagermann was speaking the right speak. From my discussions afterwards, everybody said, "Yeah, I think they are speaking in good faith. So far, so good. We’ll wait and see." The deal has not been closed yet, and it will be a couple of months.

Gardner: This proposed merger, I think, caught some people by surprise. There is continuing consolidation in the BI space, and there are a couple of other players out there, including Cognos, that people are curious about. SAP seems to have maintained for some time that they didn’t need something like this, that they had already a sufficient visibility into operations and intelligence. What changed in the world or what changed in SAP that required them to go out and get this company?

Kobielus: Oracle. Oracle is into aggressive acquisitions and continuing to bulk up performance management, BI and everything else. I think SAP saw the writing on the wall. If you look at Business Objects, its total product portfolio, in many ways, overlaps with what SAP already has under the NetWeaver umbrella, but SAP has much more, of course. They are complete SOA vendor and a complete application vendor.

I see the convergences that are going on are all being driven by SOA mega brands that are continuing to bulk up on the full range of best-of-breed tools that enterprises are asking for. SAP, although it has BI, data warehousing, and data integration under NetWeaver, none of that is best of breed. It’s all primarily just in the box when you license their CRM or ERP applications.

Gardner: Not a lot of market presence for those yet, is there?

Kobielus: No, not really. SAP’s BI tools aren't on anybody's short list -- "Oh, I have to get BI and, therefore, I want to evaluate NetWeaver BI." SAP realizes that to go after Oracle or defend themselves against Oracle, they needed to bring in a BI mega brand under their big top, which is what they are doing.

Then again, there are a lot of complimentary aspects between the two companies in terms of product portfolio, but clearly there is a lot of head-on competition. Performance management is getting crazy now, because SAP acquired OutlookSoft, Business Objects acquires Cartesis, and several other companies, and now they've got excessive duplication of financial analytics applications under the SAP family.

Gardner: Speaking about mega brands and vendors, let’s move to this BEA-Oracle, proposed acquisition. Oracle apparently making a maybe not hostile, but not seemingly friendly, bid for BEA. BEA doesn't necessarily say "Go away," but, perhaps, "Sweeten the deal and we can talk."

Again, we don’t know how this is going to pan out over the several weeks, but we do seem to be having a bifurcated approach in the market. On one hand we've got the Larry Ellison view that it’s only going to be two or three IT companies in the world in 10 years, and he's going to be one of them.

Then we have this other view around WOA. What JP mentioned. Let’s just do Guerrilla SOA. Let’s do what's going to make sense for us and have a relatively short return on investment, something that brings us agility. It explains why stacks around LAMP and Open Source have been popular and why tools have moved to more of an open source in an Eclipse framework. It explains why things like Amazon’s EC2 are popular with people -- just make something, load it up, and use it -- and the advance of things like scripting languages and Ruby on Rails. This is a different approach to the market.

Let's go first to Tony Baer. Tony, do we need both? Do we need the big-vendor, top-down, mega-brand -- "We’ll do it all for you and in fact, we won’t even be your vendor, in a sense, we’re going to be a partner of your company. We are going to be linked at the hips for the next 50 years?" Do we need that, and, if so, at the same time, do we also have to have this grassroots, "Let’s do it with what we can -- simple, down and dirty?"

I believe Adam Bosworth a few years ago jumped on this and said, “Geez, let’s just do what we can do, use the Web, use the simple protocols, keep it simple.” How do these two things relate, top down and bottom up?

Baer: It really reflects the state of the software-development world today. Parts of this argument we could have had 10 years ago, the whole idea of the big umbrella vendor. If nobody wanted a big umbrella vendor and wanted best of breed, SAP would not be what it is today.

I remember during the emergence of the ERP market about 10 or 12 years ago, there was a debate: “Shall we go best of breed, versus an umbrella approach?" The market has clearly spoken. However, what you've gotten at the same time is a revolution that picked up steam with the original Borland IDEs and the popularity of bottom-up development, and was energized by the original Visual Basic. There is a powerful constituency of organizations that need Guerilla SOA and need to get it done now. It’s also behind the rise of agile development.

So, you're always going to have the two, because no matter how heavily an organization enforces enterprise architecture standards or has a standard reference architecture or preferred vendors and sources and technologies, there are always going to be people within the organization's small pockets doing their own thing. That was very much behind the rise of Linux.

So, the two will coexist, and the degree of presence within organization will reflect the internal culture and politics. I don’t think in any organization you are going to have a 100 percent of one and 0 percent of the other. They are going to co-exist, and the challenge is reconciling the two.

Gardner: Jim Kobielus, isn't there the likelihood that there are going to be some organizations that are centralized, that are going to make big strategic decisions and say, "We are an IBM shop, a Microsoft shop, or an Oracle shop?" And they will go to a full across-the-board partnership with that vendor. There might be certain advantages to that over time, in that they’ve only got one or two skill sets to maintain for development and deployment, and they can make deals with the vendor, but there is also risk. They get lock-in and they can be told what they are going to pay for IT, and not get a chance to bid for it.

So, there’s one type of organization, and we've seen plenty of examples of that. At the same time we've seen organizations that say, "Listen, we want to have a variety of technologies, to be experimental, to innovate, and to take advantage of the latest and greatest. We'd like open source, we like visibility." Are we talking about bifurcation between one kind of a company and another kind of a company or are these going to be influences that happen inside the same company, and but might lead to tension and even discord.

Kobielus: I don’t think it’s bifurcation between one type of company versus another. Most companies will continue to standardize on a limited range of strategic vendors for their core infrastructure. However, in every organization you have alternate sourcing approaches that different individuals and groups and functions pursue at various times.

Everybody is going to run around the corporate standard, if the corporate standard doesn’t meet their needs. It’s the actual knowledge workers, the end users. If IT can't give them what they need, they are going to find it some other way. If what the knowledge worker needs is not being funded out of capital budgets and being supported by IT, they're going to pay for it our of their monthly expenses. They are just going to grab it for free on the Internet and mash it up.

One of things that I liked at the IBM show was, as I said, the Info 2.0 strategy. They explicitly said, "We recognize that our core customers, the Fortune 500, the IT groups, etc., are very top down in terms of, "We would love them to go with the IBM mothership, but we recognize that the people on the front lines are feeling the pain points."

The knowledge workers don’t necessarily subscribe to that top-down, monolithic approach. They will go out and grab what they need from the Internet. IBM would love to provide the basic tools, be they closed source, open source, or whatever, that becomes de facto standard for knowledge workers meshing up everything allover creation. Different individuals in organizations take different approaches to get the solutions they need ASAP.

Gardner: JP, in the field, do you find that some of the clients you work with are of a mind to be either centralized and big-vendor oriented, comprehensive and strategic, or do they have a culture that tends to be more of the Guerilla SOA approach. Is it a shift from one company to another and how they do this? Or are these things happening simultaneous inside the same organization, both the top-down and bottom-up approaches?

Morgenthal: In the past year and a half, I've been focusing more on the small and mid-sized market, and these guys just want to get something done. The interesting thing is that they don’t spend their time sitting there wondering, whether they're going to do Web services or SOA. It’s more like 1,500 calls coming in a day, they’re being bombarded, and yet they still have to get stuff done. So, it’s the backlog.

Then you come in and you tell them, "Hey, in three weeks I can give you a completely new wrapper around everything you have, leave exactly what you have in place, but allow you to do everything you wanted to, the way you want to do it." At first, they say, "Right, show me." Once you show them, it opens up a non-stop flow. They get it the minute they see it.

The biggest and most exciting thing I have seen is that the end users, who have been using the same system the same way for maybe 5 or 15 years, get a whiff of this new stuff. At first they’re hesitant, but they approach it, they grab it, and they absorb it. A week later, they're asking you, "Can we do this, can we do that, can we do . . . " All of a sudden, it just starts a fire, and that is really the most amazing thing I have seen a long time.

The alternative in my world is to spend a year implementing Red Prairie, Manhattan Associates, JDA or something like that, and, maybe after painful process of learning how to use all the new screens and new data, you might get something good out of it. You can just almost feel the "running on ice" that the end users are getting through this process, versus the modern quick, "Wow, this is amazing. Let’s build it and let the business drive it." They take hold of it and they take the responsibility. They're hungry and they start asking for new features within a week

Gardner: It really opens up innovation at a level where people in IT can have a complementary relationship, rather than a sequential one.

Baer: Yeah, it’s a cool development by so-called amateurs, facilitated by their social network-- the whole Web 2.0 thing. It has a Facebook paradigm almost.

Gardner: Lets do a little primer stop here on WOA. As I said, my first smell of this in the market was probably four or five years ago, when Adam Bosworth, who, I think, at the time was with BEA, and who recently just left Google, brought a sort of manifesto. "Enough with all this distributed Java stuff, the heavy lifting, the intense object orientation, and these long, sequential development projects that take 6-12 months. Let’s get down and dirty with the lightweight, take advantage of open source, start using scripting and being 'of, for and by' the Web."

That sort of led to talk of rich Internet applications (RIAs) and we had the arrival of and wildfire around AJAX, that was related to SOA activities, where we could have mashups and front ends of Web services that would relate to a SOA backend or architectural approach.

Then about a year or year-and–half-ago, we started seeing WOA. I believe it was a Gartner acronym -- they are very good at acronyms -- and it’s also been called Enterprise Web 2.0 or Enterprise 3.0. But, it’s really putting emphasis on REST, as a way of leveraging HTTP as a Web service, and now WOA is becoming more of an emerging best practice. Guerrilla SOA better captures what it’s up to or about than WOA. We have seen a number of people, including Dion Hinchcliffe, be prolific on this.

So, this notion of an application with a REST style for building Web services based on straight HTTP and XML sort of applies to what JP has been talking about. Are we talking about the same thing? Are Guerilla SOA and WOA the same thing, Tony Baer?

Baer: I would say that conceptually they're similar. I'm sure there are probably purists who would probably come up with their own unique definitions to reflect the idiosyncrasies of each of the terms, but, I think it refers to an overall style that JP describes very well from his experiences in the field. It’s the same drive that’s basically made agile-development techniques so popular.

The idea is that we have pain points we need to address today, but we need a planning methodology that’s robust enough so that we don’t keep chasing our tails. At the same time, we also need technologies we can use to make this simple.

For example, when you look at just the difference in style between conventional Web service and RESTful, there is a little bit of an irony. Conventional Web services were touted as a simpler alternative to an earlier incarnation of SOA, which was CORBA. This reflects a growing maturity in the field. As we started getting a little more experience working with some of those Web-services technology, we realized that maybe we didn't always need those complicated SOAP headers. So, why not dispense with that, because most of our needs right now are for simple things like fetching data.

So, going back to some of the old SQL metaphors, a lot of the RESTful style owes a huge debt to SQL, simple commands for getting, inserting, and changing data. So, if it gets the job done, who cares about trying to do these complex, composite, orchestrated applications? Let’s just use some REST style, and by the way, why don’t we just mash up the results on a screen.

Kobielus: Can I say a few things?

Gardner: Yes, please.

Kobielus: I could out-acronym Gartner any day of the week, so I'm going to call it GOA. We have Guerilla Oriented Architecture versus Governance Oriented Architecture. When we talk about standard SOA, it’s GOA, for governance, software development lifecycle, and so forth. Until a couple of days ago, when you guys told me of this acronym, I hadn’t even realized that there was a new acronym here.

The ‘W’ in WOA stands for Web. If you think about the new paradigm, the ‘W’ could stand for Water cooler, it’s Water cooler Oriented Architecture. It could stand for Wow!, the user doing something and saying "Wow, hey, I'm going to share this with you in my social network. Look at this that I just built. Can you add on to this? It could stand for Wiki . .

Gardner: Or Widget.

Kobielus: Yes, Widget, exactly. Hey, I’m going to write this down. It could stand for Wiki Oriented Architecture, that sort of governance-light, or governance-free style. It could stand for Widget…

Gardner: Wisdom Oriented Architecture, wisdom of the crowds, right?

Kobielus: Yeah, I'm agreeing with everything that Tony, JP, and you, Dana, have said. This is coming on like gang busters. If IBM feels that it needs to assertively establish its own framework in this new paradigm, and then to provide multiple tools, and to really put a high-level mucky muck to talk about this vision with the analyst community, I think it’s pretty serious.

Gardner: All right. Is this a case of barbarians at the gate, where we have got the water-cooler folks, who are just technically savvy enough that they can do mashups? Some of the younger folks who come into organizations from colleges where they have been building their own pages for years are very adept at working with scripts, HTML, and XML. Are they just going to say, "Listen, we’re not going to have anything to do with IT. You just give us the APIs, give us access to the data, and we'll make the business processes, the Guerilla SOA happen." Is that what we've got here?

Baer: Yeah, pretty much.

Gardner: JP, what do you think? Is that what you’re seeing?

Morgenthal: We can’t help but to constantly be impacted by the knowledge of students coming out of school more and more technologically savvy. My kids started using a computer at three years old. They were already programming at 13-14 years old. So, are you telling me that they’re going to sit around and wait for Joe up in IT to come down and fix something? Are you kidding me? These kids are setting up their own network. They’re hooking up wireless. They’re using cell phones as tools.

These people are not going to sit around waiting for some guy in a glass house, and businesses better learn that now, and better start preparing for it now.

The way to do that is to start looking at their existing systems and figuring out where things are bottlenecked, where things are log jammed, and let them run with it. Otherwise, they’re going to get frustrated and they’re going to go to the places where they can do that.

Gardner: So, it’s almost a radical departure. We’re looking at innovation almost like we’ve seen in markets. Venture capital will spend dollars across multiple startups, knowing that a large percentage of them will fail, but that they get innovation and they get disruption as a result, and they are willing to accept that risk.

It seems as if we could take this a radical step further, which is to say, we need to decompose and change the actual structure of corporations, to not be large assemblages of reusable and extendable and scalable resources; whether it’s logistics, shipping, manufacturing, energy, or IT. Instead, we should look at this more like an ecology, a universe of different folks -- either individuals or small groups -- going out, being innovative, letting some of them fail, but when something sticks and works, then start using it as a standard operating procedure.

Does anybody share my view that this could really move towards a radical change of how corporations are actually structured?

Kobielus: What it comes down to is that a corporation innovates, differentiates, and survives based on the initiative of individuals taking the bull by the horns and solving problems. So, in a sense, BI could stand for Business Initiative.

It comes down to the knowledge workers and the people who are in the operational front lines. Generally they feel the pain, and, therefore, they have the greatest personal stake in implementing a solution ASAP at some micro level that addresses at least their local pain point.

So, you want to empower these people. You want them to feel that there is a quick time to a solution, that the solution is within their control, and that they can implement it without too much paperwork and bureaucracy.

Gardner: The recent The Economist magazine that came out October 15 has a special section on innovation. Interestingly enough, they sort of pointed out the same conundrum. The corporations traditionally needed to exist because of the requirement of huge capital brought together in large R&D budgets to solve massive technical problems. They're being overshadowed by groups of 8 to 10 people that then create a startup using their credit cards, access to Web services, and low-cost computing, storage, and networking. Innovation is happening among these small groups.

It almost negates the advantage that large corporations have had. If it's the case that the structure of the corporation shifts towards grassroots, be it inside the organization or from small companies that they look to as suppliers, or potential acquisition targets, then what does that say to the view of somebody like an Oracle or an IBM which are bulking up and trying to become everything to everyone, particularly those large corporations?

Kobielus: Well, it comes down to the fact that the centers of initiative or centers of excellence need to be encouraged. When I say "centers," actually decentralized centers of excellence, need to be encouraged, empowered, and have control over the tools available to them. They need to be able to mix and match across the SOA universe. They're not going to necessarily want to buy everything from Oracle, SAP, or IBM. It comes down to: they need their money and they need to be able to control the purse strings locally to meet their local requirements.

Gardner: What I’m getting at is that the rationale, or one major rationale, for the very existence of corporations was that they needed to have scale. They needed to be able to create enough capital under one roof to create efficiencies for all the participants in the corporation to leverage. Now, it's shifting away from "under one roof" to the Web, so that you can now get a lot of the resources. The scale and efficiency actually works more in your favor, when you go decentralized. That much you needed to do before under a large cap-ex expenditure kind of environment.

Does anybody following me on this? The Web itself and the WOA and the Guerilla SOA are all part of the same trend, which is away from the need for a large corporate umbrella, but that you can get things done, satisfy customer needs, be innovative and agile in new markets, and can go global, all based on not needing one big umbrella, but leveraging what’s able across a rich, fertile, open ecology?

Kobielus: You hit on the important metaphor there, and it’s a horticultural metaphor, away from the walled garden, toward more of a wildflower meadow. Let a thousand flowers bloom. A vibrant corporation is one that can to sustain an ecology of wildflowers. The beautiful ones pop-up and get cultivated, and, hopefully, it’s a prettier meadow, generation after generation, through natural selection.

Gardner: We’ve discussed on the show many times how SOA is disruptive, requires cultural and organizational change in companies, and it’s really hard. We’ve had the discussion of the culture within IT, and the culture within business. How are we ever going to get them to come together?

Maybe we ought to take the disruption discussion to another abstraction level, which is to say, "To hell with the big corporation, and the central IT department. Let’s create small, independent companies, where people can live and work anywhere, can contribute their expertise, can be innovative, and, in a sense, we're talking about the deconstruction of the monolithic corporation that’s been with us for a couple of hundred years.

Baer: Dana, if you look at the evolution of the manufacturing sectors versus the automotive industry, it’s a great case in point. There's been a devolution from the classic, "build everything under one roof," which was epitomized by the Ford River Rouge Complex to today's auto industry, where essentially they're putting together what could be called agile coalitions of suppliers. The companies that best tap that are the ones that can reduce time to market.

Gardner: What do you think, JP? Does that make sense, given the small and medium-sized companies you work with? Are they becoming aspects of various business change, and that it would never make sense for them to be all trying to bulk up under one large roof?

Morgenthal: I think they are years behind focusing on that. There are two aspects. There are small companies that have started in the last five years with the paradigm on their side. Then, there are hundreds of thousands of small companies that were started let’s say prior to the end of 1990s, not born of the paradigm, focusing on how to survive day-to-day. I think a Tsunami is coming their way, and they have no idea how to get out of the way, and they’re going to drown.

Gardner: Interesting! Well, I would like to take these technology discussions up a notch and see how they affect economics and behavior. I agree that we’re up against a real sea change. It’s not just the use of SOA or the changing relationship between IT and business within large companies, but the very notion of how capital can best be used, productivity be best leveraged and extended, how people can be made happy and fulfilled in their lives, make enough of a living, and have a stake in what they are doing?

It's going to take years or decades, but we really seem to be at more than just a shift here technologically. It really seems to be a shift in how business is done and how people relate to one another.

Baer: I'll add something to that, because I wrote a white paper, and this was one of my actual ROI propositions to these people. They have to face -- and nobody wants to face this key issue -- the labor shortage we're facing as the baby boomers start to leave the IT environment.

Everyone thinks that India, northern Asia, and Eastern Europe are going to be able to pick up the pieces of this old code, and keep running with it, as people start to leave the workforce here in America. The truth of the matter is that maybe in 15, 20, or 30 years they might be ready to, but there is more to understanding codes than just reading it. It’s understanding the context behind it.

I worked with an offshore India team quite closely. They get the code. They can do anything you tell them to do, but they don’t understand the business context behind the code. You can explain it 20 times, and they still won’t get it. They absorb things most times at a very, very technical level. They can be excellent development teams, but there is a difference between being able to understand the business context of why something is done and doing it just because this is the sequence of events.

Therefore, you’re going to have a huge gap in about 10 years of people who understand the business context behind the stuff leaving the workforce. Nobody wants to face that. Nobody wants to invest in it. Nobody wants to understand it. And, nobody wants to think about how do I move from where they are to where they need to be, so that they're never impacted by this again? That is our next "millennium problem." The millennium bug, the year changeover, the devastation it caused, that’s nothing compared to people leaving the workforce in droves.

Gardner: We have this big labor swap out, and they’re not fungible. One can’t replace the other. It has to be a shift toward something new and different.

Baer: It doesn’t have to be new or different. You need to get to a point where the business context isn’t so tightly encapsulated in the working system, but with the people. You can’t lose knowledge. Right now that knowledge is heavily entwined.

Gardner: All right, let’s leave it there. Again, another great discussion. I appreciate your time. We’ve been talking about the announcements from IBM at their Information On Demand Conference, the pending merger of Business Objects with SAP, the proposed merger of BEA and Oracle, and how all those things relate to what we now know as Web Oriented Architecture, but what I like better is Guerilla SOA.

To help us work through this, we’ve been talking to Tony Baer, a principal at onStrategies. Thanks again, Tony.

Baer: Dana, thanks much.

Gardner: Jim Kobielus, principal analyst at Current Analysis. Thanks again, Jim.

Kobielus: Always a pleasure!

Gardner: And JP Morgenthal, the CEO of Avacor. Thanks, JP.

Morgenthal: Thank you, and I’m glad this time I could have more input and value than I did in the last conversation.

Gardner: You were fine before too. Don’t worry about it. The last time, we had seven people on, so, a smaller group is better.

I want to thank you for listening, this is Dana Gardner, principal analyst at Interarbor Solutions. You’ve been listening to the latest BriefingsDirect SOA Insights Edition, Volume 26. Come back next time. Thank you.

Listen to the podcast here. If any of our listeners are interested in learning more about BriefingsDirect B2B informational podcasts or to become a sponsor of this or other B2B podcasts, please fill free to contact Interarbor Solutions at 603-528-2435.

Transcript of BriefingsDirect SOA Insights Edition podcast, Vol. 26, on industry mergers and acquisitions, Guerilla SOA, and Web Oriented Architecture. Copyright Interarbor Solutions, LLC, 2005-2007. All rights reserved.

BriefingsDirect SOA Insights analysts on BEA, Google/Capgemini and systems integration

Edited transcript of weekly BriefingsDirect[TM] SOA Insights Edition podcast, recorded September 10, 2007.

Listen to the podcast here. If you'd like to learn more about BriefingsDirect B2B informational podcasts, or to become a sponsor of this or other B2B podcasts, contact Interarbor Solutions at 603-528-2435.

Dana Gardner: Hello, and welcome to the latest BriefingsDirect SOA Insights Edition, Vol. 25. This is a weekly discussion and dissection of Services Oriented Architecture (SOA) related news and events with the panel of industry analysts and guests. I'm your host and moderator, Dana Gardner, principal analyst at Interarbor Solutions. On our panel this week, and this is the week of September 10, 2007, we have Tony Baer, a principal at OnStrategies. Welcome, Tony.

Tony Baer: Hey, Dana, how are you doing?

Gardner: I'm doing great. We’re also joined by Jim Kobielus, principal analyst at Current Analysis.

Jim Kobielus: Hi, everybody.

Gardner: Hi, Jim. Also, Brad Shimmin, principal analyst at Current Analysis.

Brad Shimmin: Greetings, Dana.

Gardner: Welcome. Our topics this week are timely. We’re going to look at the recent BEA conference and some of the announcements that came out of that. We’ll also take a look at some of the issues around management and SOA, something that’s been of great interest to me.

Last, we’ll look at the Google announcement that Google applications, software, and service offerings which are closely aligned with Microsoft Office offerings will be supported by Capgemini, a large enterprise systems integrator (SI) and professional services organization, giving a bit more credence to the virtual applications suite approach.

First, let’s talk about BEA World. Let’s go to Brad Shimmin. Brad, you were there. We had some announcements about registry repository. We had some announcements around rich internet applications (RIA) and partnering with Adobe, and then also some ticklers around something called Genesis. Why don’t you give us the update?

Shimmin: Thanks, Dana. I’d be glad to. I was at the show, and Alfred Chuang was kind enough to do a keynote and to take some questions from analysts afterwards, which was unusual and very good. It was a great experience.

What I found most intriguing from the pretty big list of announcements they made was the under-the-radar partnership they did, not with Adobe, but with a company called Enterconnect, which is an on-demand portal company. They just announced a site called SOAApps.com, an on-demand software and service-based SOA environment. BEA partnered with them to provide the infrastructure for that.

So, any time Enterconnect sells a software-as-a-service (SaaS) SOA solution, BEA is going to get a chunk of that money, because they’ll be rolling out the infrastructure. What I found interesting wasn’t so much that partnership, but the way the BEA is positioning itself as an enabler of SaaS-based SOA environment. Everyone is saying they want to get on the SaaS bandwagon, but BEA is very well positioned to do that, because of what they’re doing with the virtualization software. You guys saw how they announced a new user-based licensing scheme for the virtualization software.

Gardner: Right.

Shimmin: Well, they're going to transfer what they learned from that to the stuff they’re doing with Enterconnect. So, down the road, they're are going to be able to have back-end software that’s going to know how to charge back and account for how the software is utilized. BEA is going to be pretty well positioned for that, and that leads into what you were talking about with this nebulous Project Genesis.

Gardner: Brad, just for the edification of our audience, what do you think BEA means by "SaaS SOA?" Are we talking about the ability to create services and make them available in someone else’s infrastructure, or are we talking about bringing that infrastructure into your enterprise and then being able to yourself create some on-demand business model?

Shimmin: Actually, it's both. They're an enabler, and that's in the positive sense. They have a strong history of partnering with ISVs and other vendors in space, and that’s going to continue for them within the SaaS space. You can look for them to provide the backend infrastructure that other companies can utilize in selling their wares, like they do it for GXS, for example.

At the same time, and that’s why it leads into this Project Genesis thing, Alfred mentioned that what they want to do for all the Weblogic and AquaLogic software is not only virtualize it, but to have that software such that it can be deployed in either an on-premises or a SaaS-based environment.

Gardner: It sounds like BEA, with some across the board approach to the pricing and business model, is trying to allow for these virtualized environments to be acquired by SaaS or on-demand providers with a low upfront cost, but then with a recurring revenue model and a sharing revenue model associated with it.

Shimmin: Exactly. That’s the Enterconnect partnership in a nutshell. Right now, BEA is the only company that’s thinking about those issues and put a pricing issue on this front.

Gardner: That’s a significant departure for BEA. In the past, they've been large capital-intensive, high-performance, and niche-oriented, when it came to their middleware and transactional and application development deployment strategies.

Shimmin: Absolutely.

Gardner: How does that affect them as a company? It’s a tough transition for any company to go from large upfront project-based revenue to a slow ramp-up recurring revenue model. Did they try to ameliorate those concerns amongst say financial analysts?

Shimmin: They had a financial briefing, which I didn’t attend, so I don’t know if they talked to that point exactly. In a roundabout way, they said they're certainly not abandoning that side of their business and see that as a very important thing for them in long-term. I don’t think they are going to try to switch. They're really just trying to build up.

Gardner: They can continue to provide high-performance transactional licensed product to the financial sector, government, and manufacturing, where they have been strong, and, at the same time, focus on this burgeoning on-demand ecology.

There might be enterprises that want to get into a shared services bureau approach internally or externally. More and more, I expect we are going to start seeing organizations like Salesforce, Amazon, and Workday that will provide more application services and composite services and then charge for them on a monthly user basis.

Shimmin: Exactly. They'll be charging the Salesforce.com folks to do this, but they also think -- and this is an interesting and weird thing to me, Dana -- that partnerships like Adobe and Enterconnect will be their ticket into the SMB market.

Gardner: Right. They don’t do really anything now.

Shimmin: Exactly. Adobe is now going to bundle in their application server with their development environment. They've already been integrated in the past, but they're now going to bundle up the pre-license and provide frontline support both ways. So, they have bundles on either side and each company can provide first-level support themselves.

Gardner: It sounds as if, as an attendee and an analyst at the conference, you came away not so much impressed with their product announcements and their technology roll-outs. but more with their shift on business model and their partnerships?

Shimmin: Exactly. Tangible announcements really centered on their registry repository. That's something every company is doing and it didn’t strike me as being unique, except this for the fact that their Metadata Interoperability Framework (MDIF) that they have for the registry repository is something they are trying to get partners to write to, and they already got Skyway on board.

They've have got some moxie going behind them there, but that's stuff that every company should be doing. I don’t really see that as being unique. The technological announcement they made is on a 10.3 server, which isn’t coming out until much later. So, it was more the direction.

Gardner: Before we bounce this off of our panelists, maybe you could offer what you think Genesis is. It seem quite nebulous.

Shimmin: I wish I could provide some clarity, but from what I came away with, reading through releases, and listening to Alfred, Genesis seems to be two different things.

When I read the releases, it sounded like it was going to be some totally new approach or direction. After listening to Alfred and talking to some folks around the conference, it seemed more like an extension of what they are already doing. I'd say it was a wrapper around things like their SOA 360º and WorkSpace 360º, ThinkLiquid, and other initiatives that they have. I was a little disappointed, because I feel that BEA put too much emphasis on these initiatives and they ended up muddying the waters and preventing themselves from making an impact.

The reason why I say that is that Alfred was saying, “Well, this is stuff we already have, a lot of the technology we already have. It's based on a lifecycle approach that is role-based for whoever it is, the IT analyst, the developer, or the business analyst."

So, it really isn’t anything dramatically life altering and new. It'a an extension of where they have already been heading.

Gardner: It sounds like a marketing exercise to try to take some steam out of the competitors in the market, maybe even a little FUD.

Shimmin: Yeah, I agree, but a positive FUD, nonetheless.

Gardner: Maybe it’s, "Let’s race to this goal. We're on our way. Let’s see who can get their first."

Shimmin: I agree.

Gardner: Let’s go to Tony Baer, now. You wrote in your blog that you are somewhat underwhelmed with the BEA announcements, but, given Brad’s perceptions of a shift in business model, I wonder if that’s changed your outlook at all?

Baer: I'll put it this way. The Enterconnect stuff, added to the virtualization strategy on which they've been embarking on for about the past year or so, is definitely the most interesting nugget of all this. The other stuff just seemed to be a lot of big marking buzz words for "We have upgraded our registry repository. Now, we have published our interchange format."

The question is whether that has anything to do with what Object Management Group (OMG) has been pushing all these years, which is their meta-object facility (MOF). Basically, it’s the idea of having some sort of standard to exchange data in and out of repositories, kind of like a like a Holy Grail.

My sense here is that it makes sense for BEA. BEA has always been an infrastructure vendor, SaaS vendors need infrastructure, BEA might as well step up to the plate and supply it. So, that is interesting.

The other thing I read in all this is that I could see that, through SaaS, it would be route towards the SMB market that BEA has never really had, because they have always tended to be coming in at a high price point. There's definitely a response to Red Hat and JBoss, on one hand, and Oracle, on the other. They need some strategy there.

The question is, though, can all this produce the types of revenues that will provide a growth path in terms of absolute revenues, compared to their traditional high-priced ticket business. I am not really sure about that, because the whole idea of SaaS is that it’s subscription and supposed to be cheaper. Well okay, we lose a little bit on each sale, but can we make it up in volume.

Gardner: I share this concern about BEA. Its stock has been bumping along at about $11 a share for several years now. They've been having some ups and downs on their licensing revenue, but nothing approaching the strong growth they had early on, led by the transactional processing capabilities and then their application server development-deployment stack. You're right. It’s also difficult from a sales perspective.

Its sales force has been out there creating enterprise accounts. How are those sales people going to go out and sell and be compensated -- and be motivated -- on this recurring-revenue model. It’s a whole different sales thing. It's hard to steer a big ship in a sales organization that way.

Shimmin: Dana, if I could jump in here. The impression I got from them was that they didn’t want to do that, but want to sell through Salesforce.com in the same model they already have. Here’s the big ticket. Give us all your money. Here’s your infrastructure and then Salesforce.com is the company that uses the model for subscription.

Gardner: In that case, we're really talking about a dozen or so major companies in the world to call on.

Shimmin: Exactly. It’s like the telco play.

Gardner: Yeah, the service-provider play. But, to address Tony’s point, those dozen or so major players are going to be very cost conscious, driving down to a volume business with low margins. Open source is certainly going to be near the top of their short list for consideration and architecture. They're also going to be looking at pure play and best-of-breed approaches. A number of these SOA infrastructure players have already targeted the SaaS and on-demand infrastructure markets. I'm thinking of Cape Clear, IONA and a few others. Let's go over to Jim Kobielus. What's your concern from a business perspective about BEA making this transition?

Kobielus: The concern I have is the same one you articulated, that they are moving away from the software license revenues, which have been their mainstay, towards a wide variety of go-to-market delivery mechanisms for getting functionality out. Now, there is the whole SaaS model, the virtual appliance model, and so on. It’s the same concern that I've expressed to Business Objects in the business intelligence space.

Looking at the BEA announcements, I am impressed with the various announcements that came out of their conference this week. It shows that they are expertly surfing the paradigms in terms of rich Internet applications (RIA), social networking and, SOA governance, and virtualization on demand. I see an exact parallel in all the initiatives to what Business Objects is doing in the business intelligence (BI) space. Business Objects and BEA recognize that their mainstay, the software license revenue model, is slowly dissolving, and they need to have alternate packaging for their existing technology.

So, looking at BEA this week, I see them more or less trying to stay on top of this very turbulent time, when its not clear how software companies will make a living in the next decade and beyond. They are going to need, as I said, multiple ways of delivering functionality to very focused marketplaces, such as the small and mid-size business marketplace.

I like the fact that that BEA has at least put a foot in the SaaS channel now with the Enterconnect partnership. I like the fact that they now have put a foot into the virtual software appliance space. Business Objects has in the last two months, seriously ramped up its SaaS strategy and is going to be working with third-party SaaS companies. Their growth is strong right now, but I think they recognize, as BEA recognizes, that the party eventually will end for traditional software companies.

Gardner: If there was any hesitation by IBM in aggressively moving to this marketplace, perhaps this will reduce any of those latencies, and IBM will say, "Okay, we are on. Let's go for it," and IBM will be knocking on these same doors.

Kobielus: I'll let somebody else on this call speak to that, because I am not really up on IBM’s open-source strategy.

Gardner: Let's go to Brad. Do you think, now that BEA has declared its intention to go after these providers, hosts, SaaS and ecology players, like a Salesforce, that IBM will walk up to the plate as well and also offer a variety of both commercial and open-source configurations?

Shimmin: Absolutely, Dana. IBM obviously has a strong heritage in the open-source market and will continue to apply that as they go forward. Their strategy is a little bifurcated right now with their ESB, open source versus close source, it’s not the same code base, etc., but still I think they're pretty well positioned to do that, if they choose to. They've got the muscle to do it, so they would be able to win in that game.

Gardner: What about Microsoft? Can Microsoft walk into these same organizations with its stack and its integrated, but albeit a window-centric approach, and compete with either an IBM or a BEA.

Shimmin: They already have. It’s not live yet. I think it’s still in Beta mode, but they have their BizTalk Services, which is a hosted SaaS-based SOA, at least for integration, that they are playing out. They have their partnership with GXS for trying to host integration services. So, they're really positioning themselves in the SaaS market. If they can tie BizTalk services to their Dynamics Live, their line of business applications that are hosted, they'll be able to hit the mid market pretty hard.

Gardner: So, as we're seeing with other waves of adoption in IT over the past few decades, the first big push into the market tends to come from highly innovative players that create their own architecture and cherry-picked components. I'm thinking of the underlying architecture of a Google, an Amazon, or a Yahoo! Then, as the market adoption moves towards more of these on-demand, Web services, and Web-based approaches, some de-facto standard or configuration becomes more prevalent and ultimately dominates the market.

Do you think we are at that phase now? Is the whole SaaS, on-demand, and hosted-services delivery market going to be looking for that de-facto standards, and BEA, Microsoft, IBM, Red Hat, open source, and mixed-breed configurations will all be vying for that.

Shimmin: Yes, and I think they will all be legitimate too. All that’s really going to matter is that they are able to speak the common language of SOA for interfaces into the company’s line of business applications internally.

Gardner: It’s all price/performance, isn’t it?

Shimmin: Exactly right.

Gardner: One thing that open source might have an advantage with is paying for maintenance and support, and is therefore on an incremental payment basis, and not a large capital-expenditure approach.

Shimmin: That’s both for the software and for management of the software. The vendors who are really going to make it big here are the one’s where you aren’t just buying the software. You remember how IBM had to plug into the back of the servers where they would monitor and manage your systems as the vendors, who are able to do that, as part of their subscription, I think they are going to have a foot up on the others.

Kobielus: I agree with what you said, Dana. As more and more software vendors come out with multiple packaging concurrently of the same technology or the same functionality, they're going to have the repackaged software, the SaaS, the hardware-appliance version, the software-appliance version, and possibly the open-source version of the exact same solutions. There is always going to be like one initial version, usually the licensed and packaged software version, that will essentially set the standard for all the other alternate packaging of that same technology.

Let me get back to Business Objects. I don’t want to keep harping on them, but they are a perfect case in point. Business Objects this year rolled out an SMB-focused packaging of their core BI technology called the Crystal Decisions line. Now, they've got three versions of that: standard edition, professional edition, and premium edition. Business Objects this week said that next year, they're going to release, in conjunction with VMWare, a virtual-software appliance version of Crystal Decisions’ standard edition with more or less the same functionality.

Business Objects a couple of months ago announced that they're also going to be implementing a hardware appliance version of all their products with various partners. They're going to have SaaS versions of all their solutions at some point in the future.

So, what I am getting at is that they are going to have all these different ways of slicing and dicing the same technology. In the beginning of commercial television, its shows were just filmed radio shows, until the programmers of this new medium figured out, "We can actually package stuff differently, and should, for this new medium, because that allows us to do different things."

Software appliances are almost like filmed radio right now. Over time, though, they will be morphed and will have their own unique set of features entirely distinct from the packaged software ancestors from which they descended.

Gardner: That relates to a recent BriefingsDirect SOA Insights Edition that we did with Jim Ricotta, general manager of appliances at IBM. He certainly led us to believe that this is going to be an aggressive direction for IBM, probably more on the hardware/software combined appliance and not so much on the software-only appliance, but certainly these configurations are percolating up in the market.

What’s interesting to me is that for these service provider type of clients, the systems' integrators are not really involved. They've been pushed to the side, and it’s the vendors themselves that are creating these configurations, which the architects within these organizations will then adopt. Does anybody want to react to the systems' integrator role in this market?

Baer: Theoretically, in having SaaS, putting it on an appliance, or however you want to take out some of the pain of all this, the idea is to bypass the system integrator. On the other hand, the fact is that maintenance still tends to be very labor-intensive. Fortunately, with remote diagnostics, you don’t have to have that labor on the site, and so a lot of that could go towards the maintenance part.

The chances are, even if you are small or mid-sized business, you may start consuming services from a number of different SaaS vendors. In other words, you are unlikely to put all of your eggs into the Salesforce basket. You might have some Salesforce. You might also have some Business Objects. Somebody's got to make the tool work. So, I see roles for SIs here, if they can be agile and adaptive.

Gardner: So, we'll wait to see some standards configuration and perhaps some leadership by certain vendors for this infrastructure on a price/performance basis. Once that settles out within the service provider sector, then that will give them, ready entree into enterprises. It’s about the right time for enterprises to start moving meaningfully towards service infrastructures.

Baer: The one part I would disagree with is on the standards. There may be standards, but as we have had Web-services standards, even though you have WSI, which is supposed to be a test bed for interoperability, you still don’t have true interoperability. What they do is get you in the ball park.

Gardner: I was referring more to industry de-facto standards, not necessarily technical or enforced standards.

Kobielus: Right, but my sense is that there are always going to be some final assembly and fasteners that you're going to have put together that are just not going to be completely covered by standards. That’s an area for SIs. It sounds like its ideal for them. They will make the stuff work.

Shimmin: You know what, guys, the threat to the SIs isn’t so much from standards. It’s from the business process management (BPM) front, and the modeling and empowering the company to take control of the application it's building from the business process out.

Gardner: In a sense, the infrastructure is coming off the wire, and therefore it’s value added. It’s all about the process integration.

Shimmin: That’s right. Most of the money these guys make is on long-term engagements, where they send folks in to talk about how the process is going to be built into the software.

Kobielus: It’s all about best practices, those templates in the business content, all of that. And, before long, the final assemblers -- where all the money is going to be made in what’s now called the software industry -- the SIs themselves are going to be agile not only among different vendors, but within any one vendor's product architecture.

They will mash up the ultimate versions of the software -- open-source software, software virtual appliance, SaaS, whatever -- of any one vendor's product portfolio in creative ways in which it probably hasn’t even occurred to the vendors themselves. So, they are going to rely on the SI to be creative mix and mash-up developers.

Gardner: Wouldn’t that be what Project Genesis might be alluding to?

Shimmin: Exactly, but that’s not so much for the integrators but for the enterprises that are employing the integrators

Gardner: And then to your point, Brad, that, in a sense, diminishes the role and value of the integrators?

Shimmin: Right. It just lessens the amount of money they make. Their role, as Jim has said, is going to be important, because they're the ones who have to do the final assembly, It just means the upfront costs aren’t as great.

Kobielus: Actually, that brings up another point I wanted to make. Once again, I can definitely draw a parallel with what Business Objects and other BI vendors are doing. I wasn’t at the show; Brad was, but as I was reading through the Project Genesis press release, they talked about social networking and involving the various roles -- in other words, IT people, and also end users and subject matter experts in the development and mash up of SOA and Web 2.0 -oriented applications.

The direct parallel in the BI world, as well as master data management, data integration, and data quality, is that they are all enabling the database administrators (DBAs), subject matter experts, and data stewards, who are business users who have responsibility for particular datasets like customer data. They are providing them with the tools to collaborate over the lifecycle and management of master reference data, etc.

Every one of the BI vendors that’s worth anything is innovating in that exact way. They're bringing the end user, the people with domain expertise, into the ongoing development and administration of these environments through Web 2.0 AJAX -type tools and social networking-type services.

Gardner: Let’s move on to our next subject, which is somewhat related, now that we’ve gotten into this, and that is Capgemini, a large global SI, saying, "We’ll help Google applications and support them inside of enterprises." This is an interesting development.

So far, we’ve heard about Google being interested more in how small offices, individual users, and productivity users would use their SaaS. Now, we have this opportunity for enterprise play. Is this a movement towards more of a SOA and SaaS for more than just rudimentary desktop productivity applications?

Shimmin: Well, Dana, it’s two things. First, it’s a legitimization of this approach, and it ratifies that it's something that’s valid for the enterprise, which I think is terrific over the long-term, because we do need competition to the Microsoft desktop paradigm.

Second, it heralds a direction in which the SIs want to go, which is being able to be more nimble in how they deploy the software. They like to be in bed with the company they work with, but they don’t want to have to wake up there every time.

Gardner: Single-source problem, right.

Shimmin: Right.

Gardner: Does anybody else have an impression about Capgemini, and I guess others saying. "Yeah, we’ll help companies figure out how to take something like Google applications, widgets, and other SaaS and integrate so enterprises can best deliver value to their internal constituencies?"

Kobielus: It’s another approach to client virtualization. There is the client, in this case a full desktop productivity suite, now completely virtualized across the Web, but virtualized in a way that's enterprise friendly and enterprise safe,because you've got an experienced SI and outsourcer like Capgemini behind it. As Brad said, it definitely legitimizes Google in this area. It legitimizes this approach. As to whether anybody in any great numbers will adopt this service, I seriously doubt it.

The Microsoft hegemony holds tight on the desktop and will for the foreseeable future for reasons that many other analysts have commented on over the years. I thought it was an interesting story, but I don’t think it’s going to rock the industry any time soon.

Gardner: That does make a good sense, when we only factor how these applications would be delivered into an enterprise’s internal constituencies. What about some innovative business development activities, whereby a company that is public-facing or is interacting with its clients outside of the organization, might want to start integrating and mashing up such services as Google provides?

Is there an opportunity for an enterprise to become more of a service provider, but start borrowing services from Google at very low cost, because Google monetizes through advertising and then integrate those, mash those, into what they provide to their end users?

Kobielus: Yeah, that’s one potential role. More and more of the Web 2.0 paradigm is focused on user-generated content. So, we have the whole Wikipeida approach. There is a potential for somebody who wants, for example, to start up a commercially-driven or advertising-supported Wikipeida-type distributed reference book, to contract out to Google/Capgemini. They would provide that collaboration infrastructure with the authoring tools and the version control and all that to support such a venture, where it’s user-generated content, and not everybody just slapping up HTML or dot-doc content.

You want people posting rich content that has been prepared in accordance with templates that the proprietor of this online encyclopedia, or whatever, might dictate. So, you say, "Well the price for participating in our environment are the constraints. You use the tools that we provide, and, by the way, they are Google tools supported by Capgemini, or whatever.

Gardner: I am thinking a little differently, not tools, but actually having word processing, communications, instant messaging, presence, and mobile commerce functions and features embedded into high-value offerings. Enterprises and companies could deliver these out to end users, supported by Google’s infrastructure and services, and integrated through an organization like Capgemini.

Another way to look at this is that as Enterprise 2.0 activities kick in, once again, the SIs might be saying, "We don’t want to be left out of this. "We have to get into this mash-up business." What do you think, Tony?

Baer: Definitely, That’s definitely what I was thinking, when I was talking with Capgemini folks the other day. We always talk about how SaaS and SOA are supposed to simplify the job of systems integration. Well, as you put all of this SaaS and SOA out, you still need to put this together. Maybe new mechanisms and emerging and you want to outsource a lot of this stuff. Something like what Capgemini is doing with Google apps is an interesting stake in the ground and it makes perfect sense from that standpoint.

There's another thing I want to tie in. I talked before about the impact of Capgemini getting in there with Google apps. When I spoke with the Cap folks, they said un-categorically, “No, we do not expect to displace Microsoft Office, but there is still a large audience out there that’s not using Microsoft Office, where the economics have been pretty marginal at best to get people connected.”

I'm not even talking about the developing world, but people are in line operations who typically have not been connected by computers and don’t need this sort of thing. This is exactly the type of play they'ree talking about.

Gardner: The whole mobile end-point world, right?

Baer: Exactly.

Kobielus: The whole Net PC paradigm and the thin client Larry Ellison tried to get on board in the late 90s didn’t go anywhere in terms of the diskless workstation or the shop floor worker who didn't have their own PC, but would share a virtual PC with lots of other folks.

Gardner: But, what about a convergence device like an iPhone and all the other knock-offs that get closer to the iPhone function set?

Baer: A couple of things were playing at the time. One, Larry was trying to do it within his walled garden. Two, the technology and the bandwidth just weren't there. I'm looking at the next generation of iPods. Forget iPhones for a moment. It will trickle down to iPhones, as well, and we're talking about 160 GB iPods.

Gardner: The Browser connects through Wi-Fi.

Baer: That is as much as my desktop holds at this point. So, all this stuff is getting miniaturized. At that point, you do get a certain convergence. Of course, these guys are not going to be heavy word-processing users, but they might need to do some texting or very light spread sheeting, and that’s exactly what this is made for. So, no, it's not going to take away the 90 percent-plus market share of Office, but there is certainly a niche out there.

The question is will it be significantly monetized lucrative enough for an organization like Capgemini, because they have very high cost structures. Just as we were talking about before, is SaaS going to be a play that really will contribute significantly to BEA. A lot of this is the economics of how an organization can make money. One other point I want to plug in from before is that I think it makes sense for BEA to sell all these SaaS providers. However, I think the SaaS providers are going to squeeze BEA and say, "Look, we don’t want to pay those upfront cost, we also want to pay per subscriber based on the number of subscribers we sell."

Dana Gardener: What if there is meaningful advertising revenue thrown into the mix? What if Google, through it's interfaces and it's huge lead and dominance of small keyword-based ads juxtaposed to either search or application activities, can change that business model fairly dramatically by making a lot of this stuff free or even subsidized, with the quid pro quo being that a couple of text ads will show up?

Baer: It sounds like a nice idea. For very small companies, it will be fine, but I wonder, when you start getting to a larger company, are they going to want to have ads penetrate through their walled garden.

Gardner: Not to their employees -- to their customers. They can start delivering services out to their customers subsidized by Google, and the quid pro quo is that the end users get a service for very low cost themselves, but they get to look at a couple of contextual ads that actually might relate to what they're doing.

Kobielus: This gives me an opportunity to go back to the radio analogy. It reminds me, Dana, of the approach, where your PBX manufacturer provides music on the hold and gives your vendor the option of piping in some commercial radio station from your area. So, your customers are sitting on hold and listening to the local radio station. Up pops an advertisement or commercial for your competitor.

So, if I am an enterprise, and I'm contracting with Google/Capgemini for this SaaS-based productivity suite provided out to my customers and or my employees, suddenly, my customers are looking at my competitor’s ads. Obviously, if you want to go that route as an enterprise, then you want to say it to Google/Capgemini, "Okay, I’ll take your ads as part of the price, but block my competitors ads and particular companies and particular market places." I'm not talking about porn. If I'm Microsoft, I don’t want to see Oracle’s ads in my environment.

Gardner: It would be very easy for an algorithmic approach to reduce any of that overlap of ads, so that there is no conflict. But, the ads would relate to user activities. It's just like when you go on hold, some companies put in their ad, which says, "Now that we are still listening to elevator music, by the way, we have a discount on three quarters of our catalogue this month and go to www.our-company-best-deals and take advantage of that." So, there is a whole unexplored way of marketing lead generation advertising revenue being driven into a SaaS model. What do you think, Brad?

Shimmin: I agree that Google really shines at stuff like getting out ads. Who knows if that model is going to play out for the consumer or the enterprise, which is what interests me the most. Obviously, that’s not going to fly for them, but what does fly for me, technologically anyway, is the whole human workflow for the information worker.

That's why this is great. Having Capgemini validate what Google is doing is great, because if you're building an enterprise app with workflow that involves instant messaging or some other form of presence communication, or even a live spreadsheet, this is going to cut down on the cost tremendously. It opens up the ability to tie those services into the given out the application that they are building, because as we all know Microsoft is making a lot of strides in tying office apps into it's own .NET and BizTalk and SharePoint services.

Gardner: Like with these "Live" initiatives, right?

Shimmin: Right, but it's not for the J2EE community.

Gardner: The business model becomes more important than the object model.

Shimmin: Exactly.

Kobielus: I see a role for a Google apps or Capgemini-type SaaS service in the area called governance, risk and compliance (GRC). One of the functional components of a full-fledged GRC environment, something called enterprise feedback management (EFM), where the environment regularly surveys all the stakeholders and end users to determine to what extent a given business process is being performed in compliance with various regulations and standards and so forth.

When you're talking about GRC over a distributed supply chain, you have many organizations and personnel not all under single management and not all using the same desktop productivity tools. They may need some common survey feedback and notification mechanism, calendaring environments, and so forth, that they could all share within the context of enterprise feedback management. That’s where an outsourced SaaS service like the Google apps and services might come in quite handy, a common EFM bus and it could span firewalls.

Gardner: Well, we had a far-reaching discussion today, but one of the things I observed is that we are talking about companies that previously would have been odd bedfellows. We are talking about Google and Capgemini, BEA and Adobe, Microsoft and Oracle and yet they are all relating to themselves on a new level, which is around the services delivery, different business models, and more importantly different partnerships and relationships.

So, this is a new era. We talk about SOA a lot, but what’s going to drive this in many respects is this new business approach to delivery of services, monetization of services. and then the underlying infrastructure that supports that. Well, thanks everyone for joining us today. We have been talking about BEA World Conference. This is the week of September 10, 2007 and also the announcement by Capgemini of supporting Google applications this week. Any parting thoughts, let’s start with Tony.

Baer: Basically, I pretty much agree with what we were talking about regarding where we might end up going with the Capgemini and Google Apps. There's a lot of unexplored territory. You mentioned, Dana, about the potential of attaching either advertisements or third-party copy. Well, go into an elevator in a major office building. You are probably already seeing CNN on the screen there. So, think about it as being a precedent.

Gardner: A precursor to what you are going to get through your mobile device or your PC soon.

Baer: Exactly.

Gardner: Jim Kobielus, parting thoughts.

Kobielus: We're already living in ad-glutted world. I think people will gladly pay a premium for an ad-free environment. That’s one of the reasons I think people will still continue to stick with desktop tools like Microsoft Office. It's like, "Wow, good, an ad-free environment that I am paying for and I am going to keep it that way. I'll keep my head clutter down to an absolute minimum."

Gardner: Well, I wouldn’t be surprised if Microsoft starts embedding some ads into it's Live offerings too. Brad Shimmin, parting thoughts.

Shimmin: On the alliances front, any alliance is a good sign, no matter how odd, strange, or otherwise it may be. The fact that we have these strange alliances is a signal to both the maturity of this market that we all talk about all time and also the vibrancy of it. So, I am thrilled that we would have stuff to talk about.

Gardner: Innovative alliances, right?

Shimmin: Yup.

Gardner: Well, great, I want to thank our panel Tony Baer, principal at OnStrategies, Jim Kobielus, principal analyst at Current Analysis and Brad Shimmin, principal analyst at Current Analysis. This is Dana Gardner, principal analyst at Interarbor Solutions, and you have been listening to BriefingsDirect SOA Insights Edition Vol. 25. Thanks, and come back next time.

If any of our listeners are interested in learning more about BriefingsDirect B2B informational podcasts or to become a sponsor of this or other B2B podcasts, please fill free to contact Interarbor Solutions at 603-528-2435.

Transcript of BriefingsDirect SOA Insights Edition podcast, Vol. 25, on industry mergers and acquisitions. Copyright Interarbor Solutions, LLC, 2005-2007. All rights reserved.